The Economic Survey 2019 focusses on moving to a “virtuous cycle” of savings, investments and exports to transform India into a $5 trillion economy in the next five years.
According to the survey, India’s GDP is forecast to expand by 7% in fiscal 2019-20, slightly higher than the 6.8% in 2018-19.
Virtuous and Vicious cycles of economy
When the economy is in a virtuous cycle, investment, productivity growth, job creation, demand and exports feed into each other and enable animal spirits in the economy to thrive.
In contrast, when the economy is in a vicious cycle, moderation in these variables dampen each other and thereby dampen the animal spirits in the economy.
Investment led economy
Private investment was a key driver for demand, capacity, labour productivity, new technology adoption, and for job creation.
Investment by the private sector cannot happen unless there is no crowding out because of the government.
Moving the economy into a virtuous cycle would require the adoption of certain practices and norms on data, legal reforms and policy certainty, and some micro-economic aspects such as boosting MSMEs and reducing the cost of capital.
Fiscal glide path
There is emphasis on private investment because the government had and would stick to its fiscal consolidation glide path. It has committed to a fiscal deficit of 3.4% of GDP in 2019-20, and 3% each in the subsequent two years.
On “Data”
The data of societal interest is generated by the people, it can be created as a public good within the legal framework of data privacy.
The government must intervene in creating data as a public good, especially of the poor and in social sectors.
The Survey made the point that data must be viewed as a public good and used in a concerted way to deliver services.
The Survey talked about merging the distinct datasets held by the government into a single dataset, which would generate “multiple benefits.”
On MSME sector
The ‘dwarf’ firms (with less than 100 workers), accounted for more than 50% of all organised firms in manufacturing by number.
Despite this, their contribution to employment was just 14% and to productivity a mere 8%.
Large firms, on the other hand, are just 15% in number but account for 75% employment and close to 90% of productivity.
Therefore, there is a need to “unshackle” MSMEs and enable them to grow into larger firms.
Employment and labour reform
Capital investment fosters job creation since capital goods production, research and development, and supply chains also generate jobs.
The factories in States that have flexible labour markets are much more productive than those in States with rigid laws. Therefore there is need of labour reforms.
Govt. can sell PSU land, reduce majority stake to boost non-tax revenue: CEA
Part of Prelims and mains GS III Indian Economy
In news
According to Chief Economic Advisor, the government can sell land held by PSUs and potentially reduce its majority stake in some companies to make up for the significant shortfall in tax revenues.
The non-tax revenues have a significant potential to expand, especially because many of the PSUs are sitting on large pools of land which can be monetised.
There is also an opportunity for greater returns from divestment. The government could reduce its holdings in some PSUs to below the majority stake of 51% of direct control.
‘Greying India must delay retirement’
Part of Prelims and mains GS II Social protection schemes GS III Indian Economy
In news
India may have to raise the retirement age as the country sees a rapid increase in the size of the elderly population over the next two decades due to the slowing down of the population growth rate, according to the Economic Survey 2018-19.
It is forecast that the population rate will grow less than 1% from 2021 to 2031 and under 0.5% from 2031 to 2041.
This is primarily due to the fall in the total fertility rate (TFR).
TFR is projected to decline between 2021-2041 and fall below replacement level fertility at 1.8 as early as 2021.
Replacement level fertility rate
The total fertility rate of 2.1 is called the replacement level fertility below which populations begin to decline.
Replacement level fertility rate for India
For India, the effective replacement level fertility is slightly higher than the normal benchmark due to the skewed gender ratio and is at 2.15-2.2.
The current TFR in 14 out of the 22 major States is already below the effective replacement level fertility.
At the State level, southern States as well as West Bengal, Punjab, Maharashtra and Himachal Pradesh have below replacement level fertility and will see TFR decline to 1.5-1.6 by 2021.
By 2031, all States are likely to see below replacement level fertility.
Change in demography
The working-age population is expected to see a large increase leading to India’s demographic dividend peaking around 2041, when the share of those in the age group of 20-59 is expected to hit 59%.
The size of the elderly population, 60 years and above, is expected to nearly double from 8.6% in 2011 to 16% by 2041.
The population size of those between 0-19 years, which is on the decline, is likely to drop from as high as 41% in 2011 to 25% by 2041.
New policy Challenges
Provisions for health and old-age care
Access to retirement-related financial services
Public pension funding
Retirement age, etc.
Suggestions
Increasing the retirement age for both men and women going forward could be considered in line with the experience of other countries.
It would also help increase female labour force participation in the older age-groups.
Many countries such as the U.S., Germany and France have already raised the retirement age to reduce the burden on pension funding.
Additional jobs will have to be created to keep pace with annual increase in working-age population of 9.7 million during 2021-31 and 4.2 million during 2031-41.
Needed: a well-designed minimum wage system
Part of Prelims and mains GS III Indian Economy
In news
As per economic survey, a well-designed and streamlined minimum wage system is required to reduce wage inequality in the country.
Currently, the minimum wage system, under the Minimum Wages Act, 1948, in India is complex, with 1,915 different minimum wages defined for different job categories across States.
According to ILO, one in every three wage workers in India is not protected by the minimum wage law.
For instance domestic workers were covered under minimum wage laws in only 18 States and Union Territories.
While the law did not discriminate between men and women, analysis of different wages showed a bias.
An example of bias
Women dominate in the category of domestic workers while men dominate in the category of security guards. While both these occupations fall within the category of unskilled workers, the minimum wage rate for domestic workers within a State is consistently lower than that for the minimum wage rates for security guards.
Recommendations of survey
Minimum wages should be decided on the basis of skills and split across geographical regions.
The government is in the process of bringing the Code on Wages Bill in Parliament, the rationalisation of minimum wages proposed by the Bill should be supported.
The government should notify a “national floor minimum wage” across five regions, after which the States can fix their own minimum wages, but not lower than the floor wage.
This would bring uniformity and make States almost equally attractive from the point of view of labour cost for investment as well as reduce distress migration.
Call to ease legal logjam for better contract enforcement
Part of Prelims and mains GS III Indian Economy
In news
Contract enforcement remains the single biggest constraint to improve India’s Ease of Doing Business (EODB) ranking, which currently stands at 163 in the world ranking.
In spite of a number of actions to expedite and improve the contract enforcement regime, economic activity was affected by the long shadow of delays and pendency across the legal landscape.
Recommendations
According to economic survey, two key issues need to be dealt with in order to make the judiciary more efficient;
Firstly, the courts must achieve a 100% case clearance rate (CCR) so that there is zero accumulation to the existing pendency.
Secondly, the backlog of cases already present in the system must be removed.
It suggested improving the efficiency of the courts, increasing number of working days of courts, establishment of Indian Courts and Tribunal Services, and deployment of technology in legal system.
Case clearance rate (CCR)
CCR is the ratio of the number of cases disposed of in a given year to the number of cases instituted in that year.
‘Shift focus to water productivity’
Part of Prelims and mains GS III Indian Economy
In news
The Economic Survey 2018-19, regarding agriculture, suggested that the country should shift its focus from land productivity to irrigation water productivity and on devising policies to incentivise farmers to adopt efficient ways of water use.
This should become a national priority to avert a looming water crisis.
Agriculture remains the predominant occupation in terms of number of people employed. Also, agriculture is dependent highly on water. So, appropriate mechanism needs to be framed for economical use of water among small and marginal farmers.
Government policies and Cropping pattern
The cropping pattern in India is highly skewed towards crops that are water-intensive.
The incentive structures like minimum support price, heavily subsidised electricity, water and fertilizers have played a significant role in the misalignment of crop patterns in the country.
The water guzzlers, paddy and sugarcane, consume more than 60% of irrigation water available in the country, reducing water availability for other crops.
States such as Tamil Nadu, Karnataka, Maharashtra and Andhra Pradesh, which have high land productivity, tend to have very low irrigation water productivity, reflecting inefficient use of water and the need to re-calibrate cropping pattern.
India could host ‘Detroit’ of EVs
Part of Prelims and mains GS III Indian Economy
In news
According to economic survey, with the right policies, it’s possible that one of India’s cities could become the ‘Detroit of electric vehicles’.
National Electric Mobility Mission Plan 2020 (NEMMP) and FAME
India has a “National Electric Mobility Mission Plan 2020 (NEMMP)” in place to “achieve sales” of 60-70 lakh units of electric vehicles (that includes buses, two-wheelers and cars) by 2020.
In 2015, the Faster Adoption and Manufacturing of Electric vehicles (FAME) scheme was launched to fast-track the goals of NEMMP.
FAME India Phase II, with an emphasis on electrification of public transport, was also launched from April 1, 2019.
Global scenario
Globally, the sales of electric cars have grown from just over 2,000 units sold in 2008 to over 10 lakh in 2017.
The market share of electric cars is around 2% in China while it is around 39% in Norway.
In India
Electric two wheelers have been the major part of EV sales with sales of around 54,800 in 2018.
Indian market share in electric cars is only 0.06%.
Uttar Pradesh topped the list of the States with highest EV sales of 6,878 units in 2017-18.
Renewable energy in India
India’s adoption of electric vehicles was part of its larger thrust towards increasing the share of renewable energy and reducing carbon dioxide emissions.
The share of renewables (excluding hydro above 25 MW) in total power generation was around 10% in 2018-19 compared with around 6% in 2014-15.
India stands fourth in wind power, fifth in solar power and fifth in renewable power installed capacity.
(MAINS FOCUS)
NATIONAL
TOPIC: General studies 2
Government policies and interventions for development in various sectors and issues arising out of their design and implementation
A scheme for farmers that has not reached most farmers
Introduction
PM-Kisan Samman Nidhi (PM-KISAN) was launched in budget 2019 to ameliorate farm distress. The scheme’s original objective to supplement the financial needs of the small and marginal farmers has been broadened to include all the categories of agricultural landowners.
Reasons of farm distress or agrarian crisis and the need for the scheme:
Falling farm incomes due to decline in international prices
Low domestic food inflation
Fragmented land holdings
Increasing indebtedness, small and marginal farmers usually take credit from informal channels at usurious rates.
Farmer suicides
Envisaged benefits of the scheme:
Providing structured income support to the small and marginal landholding farmers for procuring inputs such as seeds, fertilisers, equipment, labour and technological up gradation.
Farmers will avoid falling in debt trap.
Features of the scheme:
Annual support of Rs 6,000 to be provided in three Rs 2000 instalments each.
Entirely funded by Union Government.
Applicable from retrospective effect from December 2018
Allocation of Rs 20,000 for the current financial year (2018-19) and Rs 75,000 crore in 2019-20.
Challenges for the scheme:
Land records not adequately digitised.
Implementation issues
Fiscal space
Positive aspects of the scheme:
This support is over and above all the existing schemes for the farming sector.
Pan India coverage; approximately 12 crore farming families to benefit
Assured income support to the farming class will provide sense of confidence.
Family is taken as a unit, hence in large joint families the accrued benefit may be larger.
Negative aspects of the scheme:
Support of Rs 500 per family is not enough to alleviate farm income
Tenant farmers and landless agricultural labourers will not this benefit.
The cash transfer is not linked to the size of the farmer’s land, unlike
Telangana’s Rythu Bandhu scheme, under which farmers receive ₹8,000 per annum for every acre owned.
Telangana’s RYTHU BANDHU scheme and Odisha’s KALIA scheme offer more than PM-KISAN.
It would be recurring expenditure as it is hard to roll back. Also, it would add to fiscal deficit.
Lacunae in implementation
There are 125 million farming households, who constitute the scheme’s original intended beneficiaries. However, at present, the list of beneficiaries includes only 32% (40.27 million) of these households.
A majority of the intended beneficiary households are yet to receive even their first instalment of ₹2,000.
Implementation in certain States has been prioritised. U.P., for instance, accounts for one-third of total beneficiary households. A total of 17 States have received a negligible share of the first instalment, accounting for less than 9%.
Way forward
For the scheme to be effective, PM-Kisan needs to be uniformly implemented across regions.
Tenants constitute 13.7% of farm households and incur the additional input cost of land rent. There is a strong case to include landless tenants and other poor families.
There is need of the necessary link with scale of production (farm size).
If income support is indeed the objective, the most deserving need to be given precedence.
Connecting the dots:
Critically examine the provisions and implementation of PM-KISAN scheme.
NATIONAL
TOPIC: General studies 3
Challenges to internal security through communication networks and cyber security
Security challenges and their management in border areas
Not a bloodless option for India (Cyber Attacks)
Introduction
Recently, USA resorted to Cyber strikes on Iran and avoided military response when its drone was grounded by IRAN’s Army.
Such usage of Cyber strikes has been termed as Bloodless War. It is speculated that the strikes targeted Iran’s military command and systems such as those that control Iran’s missile and rocket launchers.
Whether India can adopt a similar strategy against Terror attacks?
India’s strategy for response against terror attacks by Pakistan
In recent responses by India against terror strikes by Pakistan an implicit criteria of India’s approach has been observed. The criteria are: pre-emption, non-military nature, and deterrence.
Justifications of these criteria
Pre – emption – It allows India to justify any operation on International Forums. It is an exception of Article 2(4) of the UN Charter and is related to Self-defence.
Non – military – the operational aim has never been to target the Pakistani people or even the Pakistani military
Deterrence – Any operation should lead to substantial damage on the enemy so as to create deterrence.
Can India conduct retaliatory Cyber strikes like USA? How would India Justify such an act on International Forums?
The conduct of U.S. cyber command was aimed at the Iranian establishment, specifically targeting its military installations.
If India conducts a cyber-strike against Pakistan’s military command or systems, it will be termed as one against Pakistan and not the terrorists. This will not be in line with the criteria of Pre-emption and non-military response.
Further, a cyber-strike against Pakistan will call for counter-cyber strikes.
Instead of the intended deterrence, it will likely lead to an escalation. Thus it has been argued that a cyber-attack is not an option for India as of now.
Conclusion
Most of the terror groups depend upon computers, networks and the Internet.
Terrorist groups use the Internet for propaganda. Thus India’s Cyber-attacks should be targeted against them.
Further the ability of Indian armed forces in conducting such an operation is still not Known. However this secrecy will create an element of surprise if India chooses such retaliatory option.
Connecting the dots:
Cyber attacks, a new way of warfare. Analyse the costs and opportunities for India.
(TEST YOUR KNOWLEDGE)
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Q.1) Ease of doing business Index is given by,
World economic forum
World Bank
International Monetary Fund
World Trade Organization
Q.2) Consider the following statements
Government investment was a key driver for demand, capacity, labour productivity, new technology adoption, and for job creation.
Investment by the private sector cannot happen unless there is no crowding out because of the government.
Select the incorrect statements
Only 1
Only 2
Both 1 and 2
Neither 1 nor 2
Q.3) Consider the following statements about total fertility rate in India,
The current TFR in 14 out of the 22 major States is already below the effective replacement level fertility.
At the State level, southern States as well as West Bengal, Punjab, Maharashtra and Himachal Pradesh have below replacement level fertility and will see TFR decline to 1.5-1.6 by 2021.
By 2031, all States are likely to see below replacement level fertility.
Select the correct statements
1 and 2 Only
2 and 3 only
1 and 3 only
All of the above
Q.4) Consider the following statements
The minimum wage system in India is governed by the Minimum Wages Act, 1948,
Domestic workers are not covered under minimum wage laws in any of the States and Union Territories.
